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Can Your Credit Union Absorb A Change to NCUA Risk-Based Net Worth Requirements?

October 17, 2013

Debbie Matz, NCUA Chair, recently announced in The NCUA Report that “NCUA staff is developing an approach targeted to the types of risk held by different credit unions. A net worth ratio of 7 percent would remain the floor… However, credit unions with assets over $50 million would be subject to improved risk-based capital requirements. The result would be higher capital levels for credit unions with high concentrations of risky assets.”

In a letter to the Chairman of the House Committee on Oversight and Government Reform, James Hagen, NCUA’s Inspector General indicated that later in 2013 there will be a proposed revision to the risk-based net worth component of PCA. He said a new taskforce “is monitoring closely similar rulemaking in the banking industry. The revised regulation will place additional emphasis on the various concentrations of credit on a balance sheet including…real estate, member business lending, and loan participations. … (T)he minimum net worth level will be based more on the level of concentrations in the financial position of each credit union than previously.”

While nobody can be sure of what the proposed revisions will be, credit unions with concentrations in real estate, business lending and/or loan participations should think strategically, asking:

  • What if the risk-based net worth revisions adversely impact our business model?
  • If it does, do we have enough net worth to absorb a range of impacts from such a revision, along with other threats to net worth?
  • What strategic options should we be considering?

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